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GPO 16 — 7464 



THE RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL 

SERVICE. 



HEARING BEFORE THE COMMITTEE ON CIVIL SERVICE AND 
RETRENCHMENT, UNITED STATES SENATE. 



Committee on Civil Service and Retrenchment, 

United States Senate, 
Washington, D. C, February 22, 1910. 
The committee met pursuant to notice of the chairman at 10 
o'clock a. m. for the purpose of considering the bill S. 1944, as follows : 

[S. 1944. Sixty-first Congress, first session.] 
A BILL For the retirement of employees in the classified civil service. 

Be it enacted by the Senate and Hovse of Representatives of the United States of America 
in Congress assembled, That beginuing with, the first day of July next following the 
passage of this act there shall be deducted and withheld from the monthly salary, pay, 
or compensation of every officer or employee of the United States to whom this act 
applies an amount, computed to the nearest tenth of a dollar, that will be sufficient, 
with interest thereon at three and one-half per centum per annum, compounded an- 
nually, to purchase from the United States, under the provisions of this act, an annuity, 
payable quarterly throughout life, for every such employee on arrival at the age'of re- 
tirement as hereinafter provided, equal to one and one-half per centum of his annual 
salary, pay, or compensation for every full year of service or major fraction thereof 
between the date of the passage of this act and the arrival of the employee at the age 
of retirement. The deductions hereby provided for shall be based on such annuity 
table as the Secretary of the Treasury may dhect, and interest at the rate of three and 
one-half per centum per annum, compounded annually, and shall be varied to cor- 
respond to any change in the salary of the employee. 

Sec. 2. That the amounts so deducted and withheld from the salary, pay, or com- 
pensation of each employee shall be deposited in the Treasury of the United States 
and shall be credited, together with interest at three and one-half per centum per 
annum, compounded annually, to an individual account of the employee from whose 
salary, pay, or compensation the deduction is made . The moneys so deducted and the 
income derived therefrom may from time to time be deposited in savings banks desig- 
nated by the Secretary of the Treasury for that purpose: Provided, however, That the 
savings banks receiving such deposits shall pay interest thereon at a rate of not less 
than three and one-half per centum per annum, compounded annually. For the 
safe-keeping and prompt payment of the money deposited with them the Secretary 
of the Treasury shall require the savings banks to give satisfactory security, by the 
deposit of bonds of the United States, bonds or other interest-bearing obligations of 
any State of the United States, or any legally authorized bonds issued for municipal 
purposes by any city or town in the United States which has been in existence as a 
city or town for a period of twenty-five years, and which for a period of ten years 
pre-\dous to such deposit has not defaulted in the payment of any part of either prin- 
cipal or interest of any funded debt authorized to be contracted by it, and which has 
at such date more than twenty-five thousand inhabitants, as established by the last 
national census, and whose net indebtedness does not exceed five per centum of the 
valuation of the taxable property therein, to be ascertained by the last preceding 
valuation of property for the assessment of taxes; or any legally authorized bonds 
issued for municipal purposes by any city or town in the Uiiited States which has been 
in existence as a city or town for a period of twenty-five years, and which for a period 
of ten years previous to such deposit has not defaulted in the payment of any part of 

29526—10 



EETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 



either principal or interest of any funded debt authorized to be contracted by it, and 
which has at such date more than two hundred thousand inhabitants, as established 
by the last national census, and whose net indebtedness does not exceed seven per 
centum of the valuation of the taxable property therein, to be ascertained by the last 
preceding valuation of property for the assessment of taxes. In this clause the words 
"net indebtedness " mean the indebtedness of any city or town, omitting debts created 
for supplying the inhabitants with water, and debts created in anticipation of taxes 
to be paid within one year, and deducting the amount of sinking funds available for 
the payment of the indebtedness included. The Secretary of the Treasury shall 
accept, for the purpose of this act, securities herein enumerated in such proportions 
as he'may from time to time determine, and he may at any time require the deposit 
of additional securities, or require any bank to change the character of the securities 
already on deposit. It shall be the duty of the Secretary of the Treasury to obtain 
information with reference to the value and character of the securities authorized to 
be accepted under the provisions of this section, and he shall from time to time furnish 
information to savings banks as to such bonds as would be accepted as security. When 
consistent with the best interests of the fund created by this act, the Secretary of the 
Treasury shall distribute the deposits herein provided for, as far as practicable, equi- 
tably between the different States and sectious. 

If, for any reason, the Secretary of the Treasury shall not be able to make satisfactory 
arrangements with savings banks for all of the funds, then he may invest the balance 
in any of the aforementioned securities. 

The moneys deducted from salaries and the income derived therefrom shall be held 
and deposited or invested, as above described, by the Secretary of the Treasury until 
paid out as hereinafter provided. Any deficiency in the fund hereby created to 
carry out the provisions of this act shall be paid out of any money in the Treasury not 
otherwise appropriated . 

For the purpose of aiding the Secretary of the Treasury in depositing and investing 
the funds created by this act a board of investment is hereby created, composed of 
the Treasurer of the United States, the Comptroller of the Currency, the chief of the 
office created by the provisions of this act, and two persons to be designated by the 
President from among the employees of the classified civil service. The members 
of the board of investment shall be sworn, and shall hold office until others are 
appointed and qualified in their stead. 

Sec. 3. That the retirement age herein referred to shall be sixty-five years for group 
one, sixty-five years for group two, and seventy years for group three. And the Presi- 
dent of the United States shall designate the branches of the service to be included in 
each group. 

Sec. 4. That if within thirty days before the arrival of an employee at the age of 
retirement the head of the department or independent office in which he is employed 
certifies to the Secretary of the Treasury that by reason of his efficiency and his will- 
ingness to remain in the service the continuance of such employee therein would be 
advantageous to the public service, such employee may be retained for a term not 
exceeding two years; and at the end of the two years he may by similar certification 
be continued for an additional term of two years, and so on. Upon the failure of the 
head of the department or independent office to make the above-described certificate 
it shall be the duty of the Secretary of the Treasury to place such employee upon the 
retired list in accordance with the provisions of this act. 

Sec. 5. That if an employee is retained in the service after reaching the rethement 
age a deduction of ten per centum of his monthly salary, pay, or compensation shall 
thereafter be made while he remains in the service, and the same shall be treated 
as other deductions under section two of this act. 

Sec. 6. That upon retiring at the age of retirement, or thereafter, the employee may 
withdraw his savings, with the increment of interest as herein provided, under one 
of the following options, and if Option I or Option II is selected, receive in addition 
thereto such annuity, if any, as may be apportioned by the Secretary of the Treasury 
out of accumulations in excess of three and one-half per centum guaranteed by the 
provisions of this act, and such apportionment by the Secretary of the Treasury shall 
be conclusive: 

Option I. In an annuity payable quarterly throughout life. 

Option II. In an annuity payable quarterly throughout life, with the provision that 
in case of the death of the annuitant before he has received in annuities the amount 
of his pavings, plus the interest credited thereon, the balance shall be paid to his legal 
heirs. In determining at his death the amount due to his heirs no account shall be 
taken of the annuities paid to him by the United States under section eleven of this act. 

Option III. In one sum. 

If after retirement the employee does not avail himself of one of the foregoing options, 
but leaves the amount due him on deposit, interest at the rate of two per centum pea 



^i^ 



RETIREMENT OF EMPLOYEES 



IN THE CLASSIFIED CIVIL SERVICE. 



'x, afinum on the original sum so left on deposit on retirement shall be credited thereto 
'^^ f 01 a period not exceeding twenty years, and if not then withdrawn the money so left 
^ on deposit, without interest, shall be covered into the Treasury as a miscellaneous 
receipt. , 

Sec. 7. That upon absolute separation from the civil service prior to the retirement' 

age, and only upon such separation, the employee may withdraw his savings in one 

sum, and in case he has bt^en in such service not less than six years he may also receive 

in addition thereto interest on his savings at the rate of three and one-half per centum 

uL per annum, compounded annually; or, in case his savings amount tg at least one 

. " thousand dollars, he may withdraw the same under any one of the foregoing options 

^ computed on the basis of his attained age. In case of the death of an employee while 

2 ' in the service the amount of his savings, together with the interest credited thereon, 

% shall be paid to his legal heirs. ^ 

Sec. 8. That beginning with the first day of July next following the passage of this 
act there shall be deducted and withheld from the monthly salary, pay, or compensa- 
tion of every employee newly entering the ser^dce to whom this act applies an amount 
equal to one-fifth of his monthly salary, pay, or compensation during the first six 
months of his employment; and in every case of promotion of any person to whom 
this act applies there shall be deducted and withheld from the monthly salary, pay, 
or compensation of such person an amount equal to the increase made by such pro- 
motion during the first three months from the taking effect thereof; and the amounts 
• so deducted and withheld shall be deposited in the Treasury of the United States to 
the credit of a siDecial fund to carry out the provisions of section nine of this act. 

Sec. 9. That beginning one year after the first day of July next following the pas- 
sage of this act, any employee to whom this act applies, who has served the United 
States for not less than twenty years, and who, by reason of accident or illness not due 
to vicious habits or by reason of exigencies of the service but without fault or d"elin- 
quency on his part, has become totally and permanently disabled, may retire from 
active service prior to the age of retirement, and, on certificate from the head of the 
department or independent office in which he is employed to the Secretary of the 
Treasury setting forth such disability and the approval of such certificate by the Sec- 
retary of the Treasury*, may receive, out of the fund created by section eight of this 
act, an annual disability allowance, payable quarterly, equal to one and one-half per 
centum of his total compensation during service prior to such retirement. Allow- 
ances under this section shall be discontinued on arrival of the employee at the age 
of retirement unless sooner terminated by the Secretary of the Treasury. 

If upon the retirement of an employee o^ a disability allowance the money then to 
his credit under section two of this act, together with interest thereon at three and 
one-half per centum per annum, compounded annually, will not be sufficient to pur- 
chase an annuity, payable quarterly throughout life, for such employee on arrival at 
the age of retirement equal to his annual disability allowance, the Secretary of the 
Treasury shall deduct and withhold from his quarterly disability allowance an amount, 
computed to the nearest tenth of a dollar" that together with the money then to his 
credit, with interest, will be sufficient to purchase such annuity. Amounts deducted 
and withheld from disability allowances shall be treated as deductions under section 
two of this act. If the money to his credit as aforesaid is in excess of the amount that 
will be required to purchase such annuity he may withdraw such excess in one cash 
sum, or in an annuity certain limited to the age of retirement 

The Secretary of the Treasury shall reduce or terminate the disability allowance 
granted to any employee whenever in his judgment it is proper to do so, and such 
action on his part shall be final and conclusive. 

In case of the death of an employee while in the receipt of a disability allowance, the 
amount to his credit under section two of this act shall be paid to his legal heirs, and 
the disability allowance shall cease and determine. 

The disability allowances hereby provided for shall at all times be limited to the 
fund created by section eight of this act, and if the total allowances shall at any time 
be in excess of such fund the allowances shall be reduced pro rata to a sum within 
such fund. 

Sec. 10. That in case of reinstatement in the classified civil service of any persoii 
who at the time of his separation therefrom received a refund under section seven of 
this act, his period of service for the purpose of retirement and of making the monthly 
deduction from his salary shall be computed from the date of such reinstatement, 
unless he shall, within ninety days after reinstatement, pay to the Secretary of the 
Treasury the amount refunded to him, with interest at three and one-half per centum 
per annum, in which esse the same shall be replaced to the credit of his account, and 
the former period of service shall be counted. 

Sec. 11. That beginning with the first day of July next following the passage of 
this act every employee to whom this act applies shall be entitled, on reaching the 



RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 



retirement age, or having already passed that age, to retire from the service under 
the provisions hereinbefore contained, and also, in addition to the annuity herein 
provided for by his own contributions from his salary, to receive from the United 
States during the remainder of his life an annuity equal to one and one-half per centum 
of his total compensation during service prior to the taking eiSect of this act; and the 
Secretary of the Treasury is hereby authorized and directed to pay such annuity 
quarterly, upon proper certification of the retirement of such employee by the ap- 
pointing officer under whom he last served. Annuities from the United States for 
the period of service prior to the passage of this act shall be payable only on condition 
that the employee remains in the service until he reaches the age of retirement: Pro- 
vided, however, That employees of group one may receive the annuity granted by this 
section on retirement at the age of sixty years or thereafter. On the death of the 
employee the payment of annuities provided for by this section shall cease and deter- 
mine. Annuities payable by the United States on salaries in excess of two thousand 
five hundred dollars per annum shall be based upon an annual salary of two thousand 
five hundred dollars. 

Sec. 12. That the period of sen.ice upon which the annuity to be paid by the United 
States is based shall be computed from original employment, whether as a classified 
or unclassified employee, and shall include periods of service at different times and 
service in one or more departments, branches, or independent offices of the Govern- 
ment, the Signal Corps prior to July first, eighteen hundred and ninety-one, and the 
general service in or under the War Department prior to May sixth, eighteen hundred 
and ninety-six. 

Sec. 13. That every person to whom this act applies who shall continue in the 
classified civil service after the passage of this act, as well as every jDerson to whom this 
act applies who may hereafter be appointed to a position or place, shall be deemed to 
consent and agree to the deductions made and provided for herein, and shall receipt 
in full for the salary, pay, or compensation which may be paid monthly or at any other 
time, and such payment shall be a full and complete discharge and acquittance of all 
claims or demands whatsoever for services rendered by such person during the period 
covered by such payment, notwithstanding the provisions of sections one hundred and 
sixty-seven, one hundred and sixty-eight, and one hundred and sixty-nine of the 
Revised Statutes of the United States, or of any other law, rule, or regulation affecting 
the salary, pay, or compensation of any person or persons employed in the classified 
civil service to whom this act applies. 

Sec. 14. That the Secretary of the Treasury shall prepare and keep all needful 
tables, records, and accounts required for carrying out the provisions of this act. The 
records to be kept shall include data showing the mortality experience of the em- 
ployees in the various branches of the service and the rate of withdrawal from the 
classified service, and any other information that may be of value and maj^ serve as a 
guide for future valuations and adjustments of the plan for the retirement of employees. 
The Secretary of the Treasury shall make a detailed comparative report annually to 
Congress showing all receipts and disbursements under the provisions of this act, 
together with thetotal number of persons receiving annuities and disability allowances 
and the amounts paid them. 

Sec. 15. That the provisions of this act shall apply only to the classified civil service 
in the District of Columbia, which is hereby defined to include all officers and em- 
ployees in the executive civil service of the United States in the District of ('olunibia, 
except persons appointed by the President and confirmed by the Senate, and unskilled 
laborers. No person serving in a position excepted from examination or registration 
as defined in the civil-service rules shall be included v/ithin the provisions of this act 
unless he has served in a competitive position for at least one year. \Vhenever any 
person becomes separated fi'om the classified service by reason of appointment in the 
unclassified service, such separation shall not operate to take him out of the provisions 
of this act. The President shall have power, in his discretion, to exclude from the 
operation of this act any group of employees whose tenure of office is intermittent or 
of uncertain duration. 

Sec 16. That none of the moneys mentioned in this act shall be assignable either 
in law or equity or be subject to execution or levy by attachment, garnishment, or 
other legal process. 

Sec 17. That for the clerical and other service and all other expenses necessary 
in carrying out the provisions of this act during the fiscal year nineteen hundred and 
ten, including salaries and rent in the city of Washington, there is hereby appropriated 
the sum of twenty thousand dollars out of any money in the Treasury not otherwise 
appropriated, to be available until expended. 

Sec 18. That the Secretary of the Treasury is hereby authorized to perform or 
cause to be performed any and all acts and to make such rules and regulations as may 
be necessary and proper for the purpose of carrying the provisions of this act into full 
force and effect. 



RETIEEMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 



Present: Senators Cummins (chairman), Lodge, Smoot, and John- 
ston, also Mr. Herbert D. Brown, assistant actuary, Joint Commission 
on FideHty Bonds. 

The Chairman. Gentlemen, Mr. Herbert D. Brown is here this 
morning. Mr. Brown is in charge of the investigation that is being 
made by the joint commission relative to premiums that are to be 
paid upon bonds given by employees, and was formerly an employee 
of the Bureau of Corporations, Department of Commerce and Labor, 
and is the man who assisted Senator Perkins in the preparation of 
the bill which is before us, S. 1944. I gave to Mr. Brown substan- 
tially the views expressed by the committee before, and I asked him 
to suggest such changes as would meet those tentative views, and I 
would like the committee to hear his statement. He is here at my 
request, not at his own suggestion. 

STATEMENT OF HEKBEET D. BEOWN, ASSISTANT ACTUARY TO 
THE JOmT COMMISSION ON FIDELITY BONDS. 

The Chairman. Mr. Brown, you may state your name and present 
occupation. 

Mr. Brown. My name is Herbert D. Brown, and I am employed 
at the present time as assistant actuary to the Joint Commission on 
Fidelity Bonds appointed at the extra session of Congress to investi- 
gate the premium rates that have been charged, and are to be charged, 
on fidelity bonds of officers and employees of the Government. 

The Chairman. You are the author of the report recently made 
to the Senate by the Department of Commerce and Labor respecting 
retirement plans in force in other countries as well as our own? 

Mr. Brown. I am. 

The Chairman. How long have you been engaged in securing that 
material, and how familiar are you with the general subject of civil 
pensions and retiring pay for employees ? 

Mr. Brown. I first became interested in the subject some six years 
ago through attending a public meeting of the Civil Service Retire- 
ment Association. At that meeting the plan that was then under 
consideration was explained by the president of the association, and 
I was impressed with the unscientific basis of the scheme and decided 
to investigate the subject and see if I could not devise a better plan. 
As a result of my investigation I prepared this plan and submitted 
it to Mr. Garfield and the other members of the Keep Commission. 
The plan was finally taken up by the subcommittee on personnel of 
the Keep Commission, of which I was a member, and a bill was pre- 
pared and finally sent to Congress by President Roosevelt. Since 
then I have drafted a number of bills to meet the different views of 
the committees of the Senate and the House. 

The Chairman. I wish you would state to the committee, as briefly 
as you can, what the bill before us, with the amendment that you have 
suggested in it, proposes. 

Mr. Brown. This bill is essentially a compulsory savings arrange- 
ment, under which each employee would be required to lay aside a 
sum of money each month that, together with compound interest at 
3^ per cent, would provide a sum, on retirement, sufficient to purchase 
for the employee a life annuity equal to 1^ per cent of his annual pay. 

Senator Johnston. Equal to what? 



6 RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 

Mr. Brown. Equal to I4 per cent of the employee's annual pay, 
multiplied by his years of service. To illustrate just what the bill 
provides, we will suppose that a given employee entered the service 
at the age of 20 and retired at 70, and his salary straight through 
his entire service was SI, 200 a year. Between the ages of 20 and 70 
he would serve fifty years. One and one-half per cent of $1,200 is 
$18. Eighteen dollars multiplied by fifty (years) would be $900. 
Nine hundred dollars would be the amount of the annuity to be 
provided for that employee during his fifty years of service. By a 
simple calculation it can be determined that $4.30 a month would 
be sufficient to provide that annuity, beginning at the age of 70. If 
an employee entered the service at 30 and retired at 70 he would 
serve for forty years and would provide for an annuity equal to 60 
per cent of his pay. The shorter the service, the smaller the annuity. 
That is necessary in order to keep the deductions within bounds at 
all ages. 

Now, in addition to that, the bill also provides that the Government 
shall take care of the annuities due those now eligible for retirement. 
That is necessary, because they have no time within which to provide 
their own annuities; and in order that the bill may be equitable as 
between all employees, it also provides for a proportionate annuity 
for all persons now in the service, covering the services rendered 
prior to the passage of the bill. So, if a person had been in the 
service twenty years at the time of the passage of the bill and had 
twenty years more to serve before retirement, then the Government 
would provide an annuity for the twenty years served prior to the 
passage of the bill, and the employee would be required to lay aside 
the necessary amount to provide the annuity for the last twenty 
years. 

Senator Cummins said the other day that he did not believe the 
bill would meet the views of the committee if it compelled present 
employees to contribute to the fund; in other words, it should be 
optional with the present employees. Therefore, I have drafted an 
amendment^ 

Senator Lodge. I do not understand that exactly; instead of 
being compulsory 

The Chairman. Those now in the service shauld come in or not, 
as they pleased. ' 

Mr. Brown. Yes; that it should be voluntary so far as those who 
are now in the service are concerned. On j)age 14, line 4, after the 
word "to" I have added an amendment which makes the bill apply 
only to persons entering the service after the bill becomes a law, and 
gives an option to those now in the service to join if they care to do 
so. The words I propose to add are as follow^s : 

Persons in the classified civil service in the District of Columbia at the time of the 
passage of this act who shall, within one year thereafter, file with the Secretary of 
the Treasury a written application setting forth their desire to be included under the 
provisions of this act, and to persons entering the classified civil service in the District 
of Columbia after the passage of this act. 

Senator Lodge. If a person is now in the service, as I understand, 
it would be practically a straight civil pension. 

Mr. Brown. Yes; the annuity for service rendered prior to the 
adoption of the plan might be so considered. 



RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 



The Chairman. If they chose to come in. It depends on how 
long they served. For the old people it would be practically a civil 
pension and for the younger people it would not be. 

Senator Lodge. And the persons now in the service would not 
receive a pension unless they accepted the terms of the act. 

The Chairman. Yes. 

Senator Lodge. Those who have accepted the terms of the act of 
course would not have an opportunity to make a contribution to 
the fund — I mean those who are of the pensionable age. 

The Chairman. With those of the pensionable age it would be 
practically a civil pension. 

Mr. Brown. I do not believe, Senator, that this bill would be an 
entering wedge to a civil pension list in this country. It would prob- 
ably be the reverse of that. It is a compulsory savings arrangement; 
but in order to establish the plan on a sound financial basis, and to 
avoid the disasters that have occurred in other countries where con- 
tributory plans have been started on unscientific principles, the bill 
provides for the payment by the Government of the annuities for 
back services rendered by the present employees prior to the adoption 
of the plan. It simply calls on the Government to start the scheme 
on a sound financial basis. 

Senator Johnston. What do jou estimate it would require? 

Mr. Brown. I have made very careful calculations as to the cost 
of the annuities for back services. If all the persons in the classified 
service at the time census bulletin 94 was prepared were included 
it would require a payment by the Government the first year of about 
eleven hundred thousand dollars, and a gradually increasing sum 
for about thirty years, when the amount would be about $3,000,000, 
and then gradually run off to nothing. At the end of about seventy- 
five years the youngest man now in the service would have passed 
away. The reason the plan requires this gradually increasing 
contribution by the Government for a period of years, and then a 
diminishing sum after that, is, as you will readily see, that the per- 
sons eligible for retirement at the present time are the residue of the 
much smaller service of many jesirs ago, and as time moves on we 
have coming onto the fund the residue of the increasing service from 
year to year; so that thirty years from now we would have the sur- 
vivors of the present service of about 170 or 180 employees. The 
group of employees coming onto the fund each year after the estab- 
lishment of the plan would receive a smaller sum from the Govern- 
ment until finally the payments by the Government would cease 
when the youngest man now in the service had passed away. 

Senator Lodge. You have also the fund gradually collecting. 

Mr. Brown. Yes; you have also the fund gradually collecting to 
pay annuities for services rendered after the plan started. 

Senator Lodge. Do you use the fund prior to the expiration of the 
seventy-five years ? 

Mr. Brown. The contributions by the employees themselves are 
treated precisely in the same manner as a savings-bank deposit, and 
are payable to the employee in case of separation from the service 
for any cause — death, resignation, or dismissal, or on retirement. 

So that the fund would be 

Senator Lodge. Then, you would not lay up any fund at aU if 
you pay them back what you put in ? 



8 KETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 

Mr. Brown. It is not a fund in the sense of being a common fund. 
Under the terms of the bill, an employee has credited to his individual 
account the amount which he pays in, and he can onl}?^ draw the 
amount to his credit on absolute separation from the service, either 
prior to the age of retirement or on retirement at the retiring age. 

Senator Lodge. But if they are allowed to draw out the annuities 
under the third option — if they are allowed to draw it out at the same 
time, it seems to me you will have no permanent fund; that is, the 
Government must go on always and pay it. 

Mr. Brown. No; the annuities payable out of the Federal Treas- 
ury are only payable for services rendered prior to the date of the 
passage of the bill. 

Senator Smoot. How are you going to lay aside this fund if the 
person is permitted to draw all of his money out? 

Mr. Brown. He can not draw the money out until he has retired. 

Senator Smoot. Supposing he was dismissed, or supposing he 
retires before his age limit and takes all this money out. What are 
you going to do then? 

Mr. Brown. There is no necessity for continuing the fund of an 
individual who leaves the service prior to retirement age. Each in- 
dividual's fun^ is separate from the others; no one contributes to 
another person's retirement, and the Government simply provides 
under this bill that each individual shall lay aside enough to retire 
on reaching a given age. Now, the money is his, and if he leaves the 
service at any time, or dies before reaching the retirement age, the 
money is returned to him or his heirs. 

The Chairman. As I understand it, Mr. Brown, if this bill were 
made applicable only to those entering the service in the future it 
would require no contribution on the part of the Government. 

Mr. Brown. That is correct. 

The Chairman. And the only undertaking of the Government is to 
see that the money earns 3| per cent. 

Mr. Brown-. The only obligation on the part of the Government, 
outside the cost of the annuities for back services, is the guaranty 
contained in the bill that the money shall be returned to the employee 
with 3^ per cent interest. 

Senator Lodge. And take it apart from the persons who are now 
in the service, but suppose they are starting entirely fresh, and a man 
serves his twenty or fifty years, or whatever it is, and then retires, 
according to this bill, as I understand it, he draws out all that he has 
put in and gets an annuity too. 

The Chairman. Oh, no. 

Mr. Brown. No. He may select one of the three options; he 
may take an annuity payable throughout life; that option would give 
him the largest amount of money per year. 

Senator Lodge. And it is calculated that what he has paid in 
would supply that annuity. 

Mr. Brown. Precisely; and if the life annuity is not an option 
that would be to his advantage, then he is permitted to take an 
annuity to run for not less than so many years. If that does not 
suit him, then he may take the cash in one sum. He can only take 
one of the three options. 

The Chairman. If he takes the cash it is simply the accumulation 
of what he has put in. 



EiETmBMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 9 



Senator Lodge. And that ends it; he can make no appUcation for 
annuity after that. 

Mr. Brown. If he takes his money in cash that ends it. 

Senator Johnston. I thought we had agreed that the Government 
could not contribute anything to this fund. 

The Chairman. I did not quite understand that. That was so far 
as the persons now in the service are concerned. 

Senator Lodge. Putting them aside, I understand the Govern- 
ment does not contribute. 

Mr. Brown. Not anything. 

The Chairman. So far as future employees are concerned we 
agreed that the Government should not contribute anything. 

Senator Johnston. I am opposed to the Government's contributing 
anything to this civil pension. 

The Chairman. How are you going to get rid of the people in 
the service now? 

Senator Smoot. Take the 465 persons in the service now between 
the ages of 75 and 79 ; they would, under your suggestion, receive no 
benefits whatsoever. 

Senator Johnston. Yes; exactly, because they went in without any 
provision of that kind. 

The Chairman. Is there not a difficulty about that. Senator, in 
this : We are trying to make it easy for those who have the dismissal, 
or the power to exercise it, in case of inefficiency. The reason they 
do not exercise it now is because of that tenderness which leads them 
to favor old men and old women and not turn them out until they 
have accumulated enough. 

Senator Lodge. It amounts to a straight pension for the people 
now in the service. 

Senator Johnston. Yes. 

Senator Lodge. They get it if the Government gives it to them. 

The Chairman. It is a straight pension. 

Senator Lodge. Paid out of the Government Treasury. 

The Chairman. So far as the Government contributes to their 
fund, of course. Take the young men of 35 years of age — and I sup- 
pose the average is not much over 35 — if he retires at 65 he would 
have contributed for thirty years. 

Senator Lodge. He would contribute; but take the 4,000 of them 
there over 65 — the 4,300 over 65 — those people under this bill would 
get a straight pension from the Government without having con- 
tributed anything. 

Senator Johnston. That is what I am opposed to. 

Senator Lodge. That does not strike me as fair, because we are 
making everybody else contribute more or less. 

Mr. Brown. Some years ago the National Civil Service Reform 
League went into the matter of superannuation in the government 
service, and they found that the Government was then paying salaries 
to aged persons far in excess of the amount they were earning, and 
that the loss to the Government from this condition of affairs 
amounted to considerably over a million dollars a year. That esti- 
mate was made several years ago. The amount is probably greater 
now. That is a permanent and an increasing burden on the Govern- 
ment, whereas the amount contributed here for annuities, much 



10 EETIEEMENT OP EMPLOYEES IN THE CLASSIFIED CIVIL SBEVICE, 

smaller than their salaries, is only a temporary expense and would not 
only be an actual saving of money from the start 

Senator Johnston. Seventy-five years. I understand you to say 
that is the time it would operate and in which the Government would 
be making contributions. There is nothing temporary about that. 
We are all temporary ourselves, if that is the idea. 

The Chairman. He means temporary as compared with the life of 
the Government. 

Mr. Brown. That is what I mean. 

The Chairman. If we ever begin the system we will either have to 
make some provisions for those who are already in the service or 
just cut them off without any consideration at all. 

Senator Johnston. We can begin a system with reference to the 
future and in reference to those who are within a reasonable age to 
contribute and let the others go as their predecessors have gone. 

The Chairman. Would you attach, Senator, the compulsory re- 
tirement ? 

Senator Johnston. Yes; I would. 

The Chairman. That, I think, is essential. If we are going to 
accomplish anything we should have that provision in the bill. 

Senator Smoot. You mean the present service ? 

Senator Johnston. Everything. 

The Chairman. Suppose we fix the age at 65 years, which, in my 
judgment, is the right age. We would then turn out about sixty- 
three or sixty-four hundred people right off. 

Senator Johnston. Yes. 

The Chairman. Well, that is one way to do it, if the Government 
would accomplish its ends. 

Senator Johnston. The Government has never done this before; 
there is no civil-service pension, and everyone who went in went in 
with that understanding — that there was nothing to be expected 
afterwards. It might operate a hardship, and I have no doubt it 
would, on those old ones, but we are not violating any custom or 
law in doing that. 

The Chairman. No. 

Senator Johnston. They are expected to retire at some time. 

The Chairman. I suggested to Mr. Brown that it might be possi- 
ble to give to those who are now in the service, who are to retire very 
soon, such a percentage of their salaries, making their retirement pay 
less than that which is contemplated by their accumulations, and 
in this manner we might reduce very much the expense. 

Senator Lodge. That does not alter the principle. 

The Chairman. It does not change the principle. 

Senator Lodge. They have had in the navy in past years an entirely 
voluntary thing — I do not know whether it exists now, but I think 
it does — where the officers unite ; in the case of the death of a person 
belonging to the association the others assist so as to give something 
to the relatives of the officer who died. That is, the money was used 
as it came to meet the obligations, just like any of these benefit soci- 
eties. Suppose you made a compulsory assessment, as this bill pro- 
vides, on all in the service to-day — how many are there ? 

Senator Smoot. There would be about 6,500. 

Senator Lodge. No; I mean on all. Suppose you make a com- 
pulsory assessment on all — the whole body of them. 



BETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 



11 



The Chairman. There were 185,000 there; there are 284,000 now. 

Senator Lodge. Suppose you assess them a dollar a month — call 
it $200,000 — at the end of a year you would have two and a half 
million dollars coming in. Why could not that amount be used to 
pension off those who had a compulsory retirement at the end of the 
year ? 

Senator Smoot. The trouble with that would be that in about ten 
years from now, when all of these came in a big bulk at once, it would 
not pay. It would meet it for a number of years all right, but when 
the forty and fifty years rolled by it would not. 

Senator Lodge. Would you not have a surplus? The Govern- 
ment under this bill, it is estimated, would be obliged to pay 
$1,100,000 — eleven hundred thousand dollars. Now suppose you 
assess every employee — and I am stating it very roughly, in order to 
get at the principle of the matter — suppose you assessed every 
employee $1 a month and got $200,000 a month. That would be 
$2,400,000 at the end of the year, and it would take $1,400,000 to 
pay the annuities and you have $13,000 to go into the fund. 

Senator Smoot. You must understand that of this million and a 
half that we pay we assess some of them at the rate of $4 a month. 

Mr. Brown. Yes, or more, according to the age of the person 
when the plan is started. The employee is to provide for his own 
annuity hereafter. The bill does not contemplate any surplus 
from the contributions of a younger employee to pay an aged employee 
in whom the 3^ounger employee has no interest. 

Senator Smoot. That is what I say, and we would fall way short. 

Senator Lodge. I do not know whether you would or not. 

Mr. Brown. I think that it would meet with great opposition on 
the part of the employees on the ground of being inequitable. 

Senator Lodge. They would all get the benefit of it in the end. 

Mr. Brown. The new employee coming in would contend that he 
was not getting any benefit from it. 

The Chairman. We would not make this apply to the new em- 
ployee, and the trouble with that is that it would peter out, and the 
fellows who had contributed the amount of money would not get 
anything at all. 

Senator Smoot. Yes; that is the trouble with it. 

Senator Lodge. He would get what he was entitled to, according 
to his length of service. 

The Chairman. Suppose you should segregate the present em- 
ployees into a tontine class and make them contribute. Now the 
fellows who went out soon would be all right, but there would come 
a time when there would be just one man who would contribute for 
his retirement. 

Mr. Brown. You would have to establish a set of level premiums — 
similar to life-insurance premiums — which would be very heavy. 

Senator Smoot. Awful heavy. That would be for the next ten or 
fifteen years, and perhaps they may have a surplus, but after that it 
would commence to go down rapidly and some of the fellows would 
come out at the latter end. 

Mr. Brown. Substantially that plan was tried in New South Wales, 
Australia, and it lasted for eleven years — and resulted in the Gov- 
ernment incurring obhgations which will run for about forty years 
more. The employees contended that the disaster was forced on 



12 RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 

them by the Government, and therefore the Government should 
make good the deficit, and finally a bill was passed by the Govern- 
ment providing for straight pensions for all persons who had con- 
tributed to the fund, and it will take the Government forty years to 
pay off the debt. 

Senator Johnston. There are only about 6,500 of these people 
who are over the limit now. Those are the only ones who would 
suffer in this matter, and the 180,000 it would benefit. 

The Chairman. But fresh fellows are coming in all the time. 

Mr. Brown. Yes; fresh ones are coming onto the fund all the time. 

Senator Lodge. You take the 6,500 people and give them a 
straight civil pension, and you will never be able to convince the rest 
of them that they ought not to have it, too. You create an injustice 
at the start. 

Mr. Brown. I have been identified with all of the bills of this 
description that have been introduced into Congress in the last three 
or four years, and I have never heard that point seriously urged 
before, even by the employees themselves. After a thorough study 
of the problem, covering a period of ten years, the National Civil 
Service Reform League, at its last annual meeting, indorsed the 
principles underlying this bill as just to the emploj^ees and to the 
Government and as the only feasible way of establishing a retirement 
system without creating a straight civil-pension list. 

Senator Lodge. But you have 6,500 people to whom you are going 
to give a straight pension from the Government without their con- 
tributing anything. 

Mr. Brown. And every one now in the service would receive a 
uniform benefit from the Government based on the length of time he 
had served prior to the adoption of the plan. 

Senator Lodge. Oh, but they would all have contributed. 

Mr. Brown. The man who is now 69 years of age would have con- 
tributed for only one year and he would receive a pension from the 
Governinent by one year less than the man who was eligible for 
retirement at the time the bill passed, and so on, down to the man who 
at the time the bill passed had been in the service but one year, who 
would receive an annuity from the Government corresponding to one 
year's service. 

Senator Lodge. Still, I do not see how you get away from the 
point that I make. You take 6,500 people here — and I am taking 
that roughly, as I have stated — according to the census; you take 
6,500 people and you separate them from the service by law, making 
their retirement compulsory, and you give them out of the Treasury 
of the United States a pension, whatever it may be, to which they 
have contributed nothing. It makes no difference who the other 
people are that come afterwards, who have contributed something, 
more or less, according to their service — but you take 6,500 people 
and give it to them from a fund toward which they have contributed 
nothing. Now, the other people will sa}^-, "We are entitled to the 
same consideration," and they are. If they reach the age and the 
service, they ought to have it just as much as the others. 

Mr. Brown. That has not been the experience of other countries 
where similar plans have been tried. A plan very similar to the 
one embodied in Senate bill 1944, except that it provides for a con- 
tinuous subsidy from the government, was established in New 



RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 13 



Zealand about three years ago, and is working admirably. The 
plan here proposed is not inequitable as between employees of dif- 
ferent ages. In proportion to the years he has served before the 
adoption of the plan the man now 40 years of age will get just as 
large an annuity at government expense as the man who is now 
70. The man who enters the service after the passage of the law 
has no rights whatever. He enters under an entirely new contract. 

The Chairman. But they are computing here the retiring age as 
65, and I can not see but what Senator Lodge's suggestion is founded 
on fact. The man goes out now at 65. 

Senator Lodge. Or 70; it makes no difference what age you put 
it at. 

The Chairman. Except there would be fewer people if they went 
out at that. At 65 the Government now undertakes to pay him 
what he would have accumulated himself if he had contributed to 
this system during all the time he was in the service. 

Senator Lodge. Precisely. 

Senator Johnston. It is utterly wrong. 

The Chairman. Now, he has contributed nothing whatever to it. 
A man who is, we will say, 45 contributes for twenty years and gets 
out at 65. He gets just exactly the same portion as the other fellow 
who goes out now at 65, but he has been contributing for twenty 
years to that fund. It seems to me unquestionably true that the 
Government will be doing more for the older people than it will be 
doing for the younger people. 

Senator Lodge. For the people who must be retired now by legis- 
lation, at this time. They get their money without having made any 
contribution, and the people who come after them get back their 
own money to a greater or less extent, and not the money of the 
Government. 

Senator Johnston. Yes. 

Senator Lodge. And that creates at the bottom of your system an 
injustice. 

Mr. Brown, The chance for promotion among those who remain 
in the service is very greatly increased by the removal of the aged 
people, and the Government has the advantage of a more efficient 
service. 

Senator Lodge. That is true. 

Senator Smoot. On the other hand, the old people who have been 
there and held the positions for years and years had all these advan- 
tages in the past. 

Mr. Brown. No; they did n6t, for the reason that superannuation 
existed during all their years of active service, and in many cases 
undoubtedly prevented their receiving promotions. Of course we 
recognize the fact that this payment by the Government of annuities 
for back services is merely making the best of a bad situation. 

Senator Lodge. If you are going to begin, it seems to me you have 
got to begin on the basis that no man shall have anything unless he 
has contributed, and that he shall have proportionately to what he 
contributes, if it is for a year or for twenty years. 

Senator Johnston. That is what I am in favor of, and that alone. 

Senator Lodge. And you have got to begin with a policy that is 
just and equitable. 



14 EETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 

Senator Johnston. Some people have got to take an apparent 
hardship. 

Senator Lodge. In other words, you have got to treat them just 
as everybody else has been treated during the whole history of our 
Government. 

Senator Johnston. When he went in he had no guaranty as to 
what he was going to get. 

Senator Lodge. It is no real hardship, because he gets just what 
he would have if there was no law passed. 

Mr. Brown. The bill can be very easily amended to meet the 
Senator's requirements by striking out one section. 

The Chairman. What section would have to be stricken out in 
order to reach that ? 

Mr. Brown. Section IL 

Senator Johnston. I want this reduced so that the Government is- 
not going to be put to any expense for those who have got to be^ 
retired. 

Senator Lodge. When we put this in force — if I may be pardoned 
for just a word more — the man who is 64 years of age and has a year 
to serve, and contributes for a year, is entitled to that proportion. It 
is very little, but he is entitled to it, and so on down. Then every 
man gets 

Senator Johnston. What he puts in. 

Senator Lodge. Yes; what he puts in. 

The Chairman. You would make the present employees come in 
of their own motion and not compel them to? 

Senator Lodge. No. 

Senator Johnston. Then there is another provision that comes 
up here — that we pay 3^ per cent interest. The Government is not 
paying that on any bond to any considerable amount. 

The Chairman. That is a troublesome part of this matter, the 
matter of the interest. 

Senator Smoot. It takes that interest to make up the amount to 
pay them back. If you cut the interest down, you have to increase 
the collection. 

Mr. Brown. Yes. 

The Chairman. Either increase the collection or decrease the annu- 
ity, one or the other. 

Senator Johnston. You would have to decrease the annuity. 

The Chairman. I believe the Government can make at the present 
time 3i per cent on the money, just as an insurance company does. 
Would it be your view also. Senator Smoot, that there should be no 
contribution on behalf of the present employees ? 

Senator Smoot. My position is that I want every employee in the 
Government put on the same identical basis, that no one can say to 
this committee and Congress "you have treated one man one way 
and another another. " 

Senator Lodge. Precisely. 

Mr. Johnston. I am in favor of the compulsory retirement at 65 
years. 

Senator Lodge. So am L 

(At 11 o'clock and 20 minutes a. m. the committee adjourned until 
Tuesday next, March 1, 1910, at 10 o'clock a. m.) 



